After crashing 60% from its April peak, Bitcoin feels like a fading fad

Bitcoin took the financial blogosphere by storm in April as the electronic currency soared — at one point tacking on 50% in just 48 hours as the value of one Bitcoin raced up from $20 at the start of the year to $220.

But like all fast-moving assets that become the playground of speculators, the momentum worked both ways, and Bitcoin has fallen more than 60% from its peak.

Interestingly, right around the time Bitcoin went bust, we also saw a huge contraction in gold prices. The precious metal lost about 26% in six months, crashing from above $1,800 an ounce in October to a low of around $1,322 in April — which included the biggest one-day drop in gold prices in 30 years. The popular SPDR Gold Shares (NYSE:GLD) exchange-traded fund is down about 12% YTD as a result despite double-digit gains for the market, and is regularly among the leaders in ETF outflows lately.

So considering the volatility in gold and Bitcoin, where will those looking for alternative currencies go next?

The reasons for the declines in both gold prices and Bitcoin values are multifaceted and not necessarily linked. Gold was affected by a massive John Paulson bet becoming unwound, cascading redemptions across asset-backed funds and of course a strong dollar holding back commodity prices. Bitcoin was affected more by speculation and typical bubble behavior.

But both ran up for a similar reason: They hit a nerve with the anti-Fed, anti-fiat money crowd.

There is a small and very vocal group, led by folks like Steve Forbes and Jim Grant, who continue to advocate a gold standard that abandons what they see as worthless dollars. As the dollar remains strong, however — and as Bitcoin and gold prices remain soft (even despite a recent rebound from April lows) — where will these alternative asset investors go?

Not silver. That metal has been soft too despite more practical uses than gold. Consider the iShares Silver Trust (NYSE:SLV) ETF is down more than 20% since Jan. 1. That’s almost twice the pain gold investors have felt.

Not other currencies, either. The dollar index — which measures the U.S. currency vs. a basket of other currencies around the globe — hit an eight-month high in April and remains quite strong.

If I distrusted the government (which I don’t) and believed the stock market was corrupt (which I do on some days but not others), I guess I would park my money in land — good Midwestern farmland. There’s a finite supply and perpetual demand.

Of course, that’s just another flavor of real estate speculation, I suppose … so perhaps there are no viable alternative alternatives to gold or Bitcoin.

What that means for stocks or gold investing, however, I’ll leave open to debate. What do you think? Are there alternatives to gold? Will gold come back? Leave your comments below or hit me up on Twitter at @JeffReevesIP.

At a Glance

The reasons for the declines in both gold prices and Bitcoin values are multifaceted and not necessarily linked. Gold was affected by a massive John Paulson bet becoming unwound, cascading redemptions across asset-backed funds and of course a strong dollar holding back commodity prices. Bitcoin was affected more by speculation and typical bubble behavior. But both ran up for a similar reason: They hit a nerve with the anti-Fed, anti-fiat money crowd.